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Risk Aversion, Road Choice, and the One-Armed Bandit Problem

Author

Listed:
  • Jean-Philippe Chancelier

    (CERMICS, École des ponts Paris Tech, 77455 Marne la Vallée Cedex 2, France)

  • Michel De Lara

    (CERMICS, École des ponts Paris Tech, 77455 Marne la Vallée Cedex 2, France)

  • André de Palma

    (Université de Cergy-Pontoise, École des ponts Paris Tech, CORE, and Institut universitaire de France, France)

Abstract

This paper provides a theoretical analysis of advanced traveler information systems for road choice with risk-averse drivers who rationally learn over time, in a simple setting. For this purpose, we study the one-armed bandit problem where a driver selects, day after day, either a safe or a random road. Four information regimes are envisaged. The visionary driver knows beforehand, with certainty, the travel time on the random road, while the locally informed driver needs to select a road to acquire information on it. Two intermediary information regimes (fully and globally) are also envisaged. We analyze these four regimes and compare the optimal strategies and the individual benefits with respect to individual risk aversion. A numerical example also illustrates the impact of risk aversion on dynamic optimal strategies.

Suggested Citation

  • Jean-Philippe Chancelier & Michel De Lara & André de Palma, 2007. "Risk Aversion, Road Choice, and the One-Armed Bandit Problem," Transportation Science, INFORMS, vol. 41(1), pages 1-14, February.
    • Handle: RePEc:inm:ortrsc:v:41:y:2007:i:1:p:1-14
    DOI: 10.1287/trsc.1060.0179
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    References listed on IDEAS

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    Cited by:

    1. Jean-Philippe Chancelier & Michel Lara & André Palma, 2009. "Risk aversion in expected intertemporal discounted utilities bandit problems," Theory and Decision, Springer, vol. 67(4), pages 433-440, October.
    2. Mark W Horner, 2010. "Exploring the Sensitivity of Jobs — Housing Statistics to Imperfect Travel Time Information," Environment and Planning B, , vol. 37(2), pages 367-375, April.
    3. Piet Rietveld, 2011. "The Economics of Information in Transport," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 24, Edward Elgar Publishing.
    4. Casper G. Chorus & Harry J.P. Timmermans, 2011. "Personal Intelligent Travel Assistants," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 25, Edward Elgar Publishing.
    5. André de Palma & Robin Lindsey & Nathalie Picard, 2012. "Risk Aversion, the Value of Information, and Traffic Equilibrium," Transportation Science, INFORMS, vol. 46(1), pages 1-26, February.
    6. Malekipirbazari, Milad & Çavuş, Özlem, 2024. "Index policy for multiarmed bandit problem with dynamic risk measures," European Journal of Operational Research, Elsevier, vol. 312(2), pages 627-640.

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